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No model, Make in India defence projects stuck

At least three critical defence projects await finalisation of the SP model so that they can go into production under the ‘Make in India’ scheme.

A committee under former DRDO chief V K Aatre submitted its report on the criteria for selecting the private companies, so that the SP model could be a part of the Defence Procurement Procedure (DPP).

Many projects under the ‘Make in India’ programme in the defence sector are pending as the Ministry of Defence is unable to finalise the strategic partnership (SP) model to choose private Indian companies for indigenous defence manufacturing. These include two critical requirements of the military — construction of submarines under project P 75I and manufacturing of a foreign fighter aircraft in India.

Defence Minister Manohar Parrikar Tuesday said: “As far as the strategic partnership is concerned, the discussions are at a final stage. There are a few steps which need to be recorded so that the document is not half-cooked.”

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But top sources in the ministry told The Indian Express that while they are keen on the SP model, serious differences within the ministry is stalling its progress. Sources agreed that certain defence projects are ready to take-off but await finalisation of the policy.

At least three critical defence projects await finalisation of the SP model so that they can go into production under the ‘Make in India’ scheme. The Navy’s submarine fleet needs urgent replacements, which shall be provided by submarines constructed under Project 75I, approved by the Defence Acquisition Council (DAC) many months ago. The same is the case with the Naval Utility Helicopters, which also await a decision on the Indian manufacturer.

Equally critical is the IAF’s desperate need for another combat aircraft to supplement the 36 Rafale fighters in the medium weight category. Three foreign companies, Boeing, Lockheed Martin and Saab, are in contention for making their fighters — F-16, F-18 and Gripen — in India but have been told by ministry officials that a decision will be taken only after the finalisation of the SP model.

First proposed in July 2015 by the Dhirendra Singh Committee, the SP model envisaged identifying a private Indian defence firm for assured contracts for all requirements of a particular military platform. It meant that a company like L&T, if selected, would get all the contracts for making submarines in India while Tatas, if chosen, would make all the planes in India for the next 20 years.

A committee under former DRDO chief V K Aatre submitted its report on the criteria for selecting the private companies, so that the SP model could be a part of the Defence Procurement Procedure (DPP). When the DPP was issued after much delay in March 2016, the chapter on SP model was missing. Defence Minister Manohar Parrikar thereafter met with representatives of industry groups to arrive at an amicable model, and formed an internal committee in the ministry to finalise the SP model.

The Indian Express has learnt that the Department of Defence Production has been the biggest opponent of this model, calling it ab initio flawed and unsuited for implementation in the Indian landscape. The acquisition wing of the ministry wants two or more companies to be selected as strategic partners for each platform, which would allow for price discovery through competitive bidding.

The Department of Defence is strongly in favour of the SP model, which it believes is the only way to kick-start defence production in the private sector in India. It is arguing for a model where a single private company is selected and the price then determined on a cost-plus model. Those opposed to the idea argue that even defence public sector units have done away with the cost-plus model, which was seen as a reason for highly inflated costs for indigenously-produced equipment.

In the view of the Department of Defence Finance, the total quantum of assured deals being made over the next two decades would bring the SP model into the ambit of big ticket procurement. This would exceed the powers of the ministry which are limited to Rs 1,000 crore. Any such proposal would have to thus go for approval to the Cabinet Committee on Security, which is bound to insist on a competitive process.

Besides allegations of impropriety and favouritism that would accompany a selection of a strategic partner, opponents of the SP model also worry about the flurry of legal challenges from losing companies after one of their competitors is selected. So vehement have been the objections raised within the ministry that the SP model was not even taken up for consideration in the last DAC meeting, chaired by Parrikar, on December 21.

Parrikar, however, said a meeting on finalising the SP model will be held sometime next week and we can “expect results very soon”.

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